PLIs to country's rescue, bring in big investments

When the going gets tough, the tough get going! It's said that crisis brings the true character of a person and a collective of such people make nations. India is on such a cusp of defining its future post the pandemic compression. Earlier, in '91 when the balance of payment (BoP) crisis became Achilles' heel, India reformed for better and sown the seeds for the transformation into an emerging economy.

As the pandemic set across the nations each had a different approach to contain it, depending upon their constraints and capacities. However, almost all of them resorted to synchronous monetary and fiscal measures at varying degrees to counter the contraction. Enormous print was spent to portray the paltry fiscal measures (relative to developed economies) and mostly average monetary response India set out. The Indian government neither has the capital comfort nor the infrastructure to withstand an onslaught of virus spread so resorted to strict and an extended period of lockdown resulting in a severe contraction of economic activity ever.

Post the gradual unlock and the second deadly wave of infections, the vaccine policy fell in place and the rate of vaccination turned out to be the best so far. Even as the pandemic lingered, the growth (due to pent-up and organic) started to limp back slowly. The government on its part started to make policy changes that could make India an attractive destination for manufacturing (for the world). These actions are not just an opportunistic response to the evolving geo-political situation but a genuine attempt to regain the possibilities. Of course, some of the initiatives like 'make in India' were seeded long back in the vision of $5Tn economy, along with the corporate tax cut (for new manufacturing units) prior to the pandemic time.

The slew of reforms (RERA, Power, Farm bills, GST, Land & Labor reforms) undertaken and the change in international trade could turn to tail-winds for the country. The various PLIs (Production Linked Incentives) were announced across multiple sectors to encourage manufacturing in India (beyond the country's needs) have evinced interest among both the domestic and international companies. Unlike the subsidies, these are variable costs and could easily be absorbed for the increased production/revenues, thus not hurting the government's scarce incomes.

Even as the recovery remained sluggish and uneven, the opportunities started to emerge as the government began to spend judiciously. While the credit offtake is still low, the central government has ramped up the capital spending boosting some of the sectors like roads, railways, power and on defence. This coupled with reforms in these sectors has brought potential for private capex (capital expenditure) in the near term. Unlike the US, which was able to raise debt disproportionately, India must be careful of its sovereign and fiscal debt, has come up with the asset monetisation and continued push towards privatisation.

In the meanwhile, the capacity utilisation of the industry began to better the pre-covid times as the export growth touched newer highs in the world of post-pandemic shortages. The low interest rate regime along with the accommodative stance and ample liquidity (bank balance sheets are robust) has kick started the private consumption which could further expand the capacity utilisations, leading to capex prospects. The changing business dynamics, digitisation and technological transformations have created newer opportunities in telecom, electronics manufacturing, chemicals, data centre (Real Estate/Electronics/Power) and other allied manufacturing.

The environmental changes have put the focus on green energy and green transportation bringing fresh impetus in the sectors like power, logistics, automobiles, renewables and water management. The growing middle class and demographic change is leading to greater consumption of textiles/garments, consumer durables, automobiles, mobile phones, etc. creating huge domestic demand. This lists us in the mantle of not just fast-growing economy but a leeway to become a prosperous country. The above datasets point out to a period dated back to a decade-and-half when similar conditions prevailed. To benefit out of these emerging trends, investors could look out for any of the infrastructure funds that mostly dedicate allocating funds towards these areas. One obvious choice is DSP T.I.G.E.R fund whose acronym stands for The Infrastructure Growth and Economic Reforms.

This fund has a pedigree of almost tracking those timelines which I'd mentioned earlier starting in 2004. The forecast, this time seems to be better due to the learnings from the past cycle when many of the infra companies grabbed projects with irrational bidding, increased leverage and execution issues due to the bottlenecks (land acquisition, environmental clearance, etc.). However, one must be watchful of the longer lead times in theme evolution, implementation of the PLI schemes and any other issues (legal/environmental) and hence could limit the exposure to this fund to an extent of 10% in the portfolio.

(The author is a co-founder of 'Wealocity', a wealth management firm)